The TYP held a public conversation last night, Wednesday, May 19, 2010 at the Cansler YMCA about the cost of permanent supportive housing (PSH). Bill Lyons, the City of Knoxville’s Senior Director of Policy & Communication, acted as moderator. Jon Lawler, Director of the TYP, delivered a presentation about the cost of PSH in the context of the Flenniken Housing development. The meeting was well attended, and the conversation, once again, was respectful and helpful on several different levels.
I’ve transcribed my notes from the conversation below, edited for clarity, with absolutely no concern for brevity. I’ve incorporated information from the PowerPoint slideshow Jon Lawler used to support his presentation.
[These are my notes. I tried to capture as much of what was said as I could. If I've misrepresented anything here, or left out something you believe to be significant, please mention that in the comments below this post.]
Attendees included several City Councilpersons (Marilyn Roddy, Nick Pavlis, Nick Della Volpe) and at least one County Commissioner (Finbarr Saunders). Apologies if I’ve missed anyone. Also in attendance were several members of the staff of the City’s Community Development department. The format of this meeting was one hour. The first half hour was mostly used for presentation, the second half hour was for conversation with attendees.
Bill Lyons, Senior Director of the City’s Policy & Communications Department, acted as moderator. He focused this meeting’s topic on the cost of permanent supportive housing (PSH), and mentioned that this meeting is the second in a series to fully explain and dialog about the components and strategies connected with our community’s efforts to end chronic homelessness.
Dr. Lyons also mentioned that it would be inappropriate to begin this discussion without mentioning that we have a baseline of cost already. We’re not starting from zero. The costs we presently incur are counted in places like the Knox County Jail, hospital emergency rooms, etc., and the tax dollars presently being spent in our community to cover those costs. Part of the impetus behind the TYP, and behind the development of more supportive housing in the community, is the great cost we already bear.
Jon Lawler presented the agenda:
- Introductory Comments by Dr. Bill Lyons
- Presentation of the Cost Components of Permanent Supportive Housing (PSH)
- Development Cost
- Operational Cost
- Case Management Cost
- Questions from the Audience
The majority of those who’ve been placed in housing in connection with the TYP have been placed in already-existing housing in the community. Our TYP has the ambitious goal of ending chronic homelessness in ten years, mainly by providing housing with support. We have enough affordable housing stock to meet some of the need, but not all. New housing will need to be developed. Since housing with support is the means to end chronic homelessness, we want to address the cost of providing housing with support, and we’ll do this by examining what it will cost to develop and operate a new PSH project.
PSH is essential to end chronic homelessness, but the TYP does not have access to unlimited resources to develop affordable housing. Our office must ensure that PSH units could be developed by an entity that could utilize all of the sources of funding that are available for this type of development. Southeastern Housing Foundation (SHF), a 501(c)(3) non-profit affordable housing developer, offers its services as development partner of the TYP. A key part of SHF’s role is to increase the stock of PSH by aggressively assembling multiple layers of funding for each development.
This task is very challenging, and is undertaken by developers with a mission to develop this type of special needs housing. SHF has a deep commitment to that mission. What is the methodology SHF or any other PSH developer uses to fund the development cost of PSH? Flenniken Housing is a good example of how these developments are put together.
Development Cost: The Flenniken Example (Cost: approximately $7,050,000)
Low-Income Housing Tax Credits (LIHTC): $3,100,000
The federal government created the LIHTC program in 1986 to stimulate the development of affordable housing. Developers compete for award of tax credits which they then sell to a for-profit tax credit investor. These are typically banks and other financial institutions like them. This investment becomes equity in the development, so the investor is a financial stakeholder in the development.
Federal Home Loan Bank (FHLB) Grant: $1,000,000
The FHLB system is composed of 12 regional FHLBs with many member banks. “[Its] Affordable Housing Program (AHP) is one of the largest private sources of grant funds for affordable housing in the United States. It is funded with 10% of the Federal Home Loan Banks’ net income each year. The AHP allows for funds to be used in combination with other programs and funding sources, like the Low-Income Housing Tax Credit. These projects serve a wide range of neighborhood needs: many are designed for seniors, the disabled, homeless families, first-time homeowners and others with limited resources. More than 623,000 housing units have been built using AHP funds, including 391,000 units for very low-income residents.” (Here’s the source link for the quoted material.)
Federal Pass-thru Dollars
These funds are appropriated by Congress and come to local governments as federal grants to be spent at local discretion within established parameters in support of federal spending priorities. Flenniken has the following federal monies in its funding mix:
- CDGB (Community Development Block Grant) Funds: $100,000
- HOME (HUD’s HOME Investment Partnerships Program) Funds: $250,000
- NSP (Neighborhood Stabilization Program) Funds (Stimulus Funds): $800,000
TCAP/Monetization Funds: $1,500,000
TCAP (Tax Credit Assistance Program) provides funds directly to state housing finance agencies, like the Tennessee Housing Development Agency, to disperse to existing tax credit developments in need of additional gap funding. This program came into existence in response to bad conditions in the tax credit market that began to create serious difficulties back in 2009 for developers with tax credits in their developments. TCAP funds make up the difference between the value of tax credits and what those tax credits could actually be sold for in the market subsequent to the economic troubles of late 2008 and thereafter.
First Mortgage (CITC Loan): $300,000
This will be the only permanent debt carried by Flenniken.
Jon stopped at this point for questions, acknowledging that this had been a very complex part of the presentation. This is fairly typical of an affordable housing development’s funding package. All of these funds must be on the table to make deals like this work, and it is very difficult to put all of this together.
Barbara Disney asked which of these funding sources has to be paid back. Jon said that every source here is a grant, except for the first mortgage. That is the one source that, like any loan, must be repaid.
Joe Minichiello asked how else the money represented here could have been used. Jon replied that all of the funding represented here except the federal pass-thru dollars have to be used to develop affordable housing. David Arning added that affordable housing development was a focus of the NSP program.
Will these developments always be this expensive?
Jon next addressed the issue of costly developments. Will PSH projects always carry the high price tags associated with Minvilla and Flenniken? No, they won’t. But let’s look at why these two are particularly expensive compared to new construction.
Minvilla: The old 5th Avenue Motel was designated as a historic rehab before it ever was considered as a site for PSH. Historic preservation creates design inefficiencies that increase cost. PSH in general, and Minvilla specifically, has more common area than typical affordable housing, and this adds cost. There’s also more office space necessary due to the onsite presence of case managers and a management company.
Flenniken: Classified as an adaptive reuse project: an old school is being converted into apartments. Adaptive reuse commonly generates a higher per-foot rehab cost than new construction. KCDC’s Eastport School development (elderly housing) has a similar if not higher price per square foot. Certain design elements also add cost: 12 foot corridors, generous community space (gymnasium), and extra office space. Certain construction factors add cost: the dilapidated condition of the building and the extensive amount of environmental abatement work that needs to be done there.
New construction of PSH will not be as expensive as these two exceptional examples. New PSH can be developed at very close to the done at market rate for typical affordable housing plus a little more for necessary additional common area.
Who are the residents and what do they pay?
It is estimated that:
- 40% to 50% of the chronically homeless population qualify for Supplemental Security Income (SSI), which currently pays $674 per month
- 10% of the chronically homeless do not qualify for SSI but earn an income equal to or greater than SSI
- 40% of the chronically homeless do not qualify for SSI and earn less than what SSI pays.
None of our residents have sufficient income to pay fair market rent on their own, which means they need rental assistance. This rental assistance is provided in the form of a Section 8, Tenant-based voucher. In our community, the Section 8 program is administered by Knoxville’s Community Development Corporation (KCDC).
Operating costs are a little bit higher in PSH than they are in typical affordable housing. On average, it costs about $3,200 per year to operate a typical affordable housing unit. It costs closer to $4,500 to operate a typical PSH unit for a year. Why is this? It costs more to staff PSH because the needs are a bit more intensive. For example, at Flenniken, an overnight staff presence every day adds cost. Utilities, repair and maintenance, and taxes and insurance would be very similar to typical affordable housing. The management cost will be higher than typical because of the level of expertise required to manage a PSH development. The role of the manager is to maximize revenue, control expenses, and preserve the value of the physical asset.
About developer risks and rewards
Jon mentioned that it’s been said that developing PSH is about easy money and no risk. Quite the opposite is true. This is very hard work, and it’s also quite risky. Tenant revenue is highly unpredictable, and the majority of expenses are fixed as opposed to variable. Folks who have been chronically homeless means are tenants who never have enough personal income to pay fair market rent, and even fair market rent does not ensure cushiony surpluses of funds. PSH providers in Knoxville/Knox County are dependent upon a working relationship with KCDC to have access to tenant-based assistance when it is needed. If assistance isn’t available, then providers are going to be housing someone without the ability to collect sufficient rent, which decreases operating reserves. Additionally, PSH providers are staffing and operating a property with higher than normal fixed operating costs and must maintain higher than normal reserves so they can do things like fund those tenants who are still working on gaining access to sufficient funds to pay rent. This is an extremely challenging operational model, and it takes a special kind of mission-driven company to meet it.
Case management cost
Case management cost is an expense beyond the operating budget of a PSH development, Funds for case management come largely via philanthropic support from the community. HPRP (HUD’s Homeless Prevention and Rapid Re-Housing program) funds; other grants from government sources like SAMHSA (the Department of Health and Human Service’s Substance Abuse and Mental Health Services Administration); and, potentially, pay for performance from the Knox County Sheriff’s Office based on savings realized by the jail (the largest provider of mental health services in Knox County) through housing people who have been chronically homeless.
Bill Lyons moved the conversation into its second half. There aren’t many ground rules here, but let’s keep this more to questions and less to extended comments.
Bill Murrah spoke. A lot of concern has been expressed by people saying “not in my back yard.” Wouldn’t it be wonderful if we could have access to people who live in neighborhoods close to the kinds of people and facilities we’re talking about? I’m one of those people who lives in a neighborhood like that. I raised my kids in 4th and Gill and nobody has ever bothered them. Our area is not a high crime area, and I challenge anyone to find an area whose property values have increased more than ours have. Our neighborhood is safe, even though it’s right next to the mission district. I have a brother who is schizophrenic, and who lived in a supportive housing situation. He lived as full a live as possible because of the support he got there. I want to allay the fears that people attach to this issue.
Joe Minichiello said that the $800,000 development fee for Flenniken was a lot, and that it seems that Southeastern Housing Foundation will become the owner of Flenniken without incurring any risk. Who determines what kind of development fee a developer is entitled to? Bill Lyons replied that the fee is suggested by THDA (Tennessee Housing Development Agency, the agency that administers the Low-Income Housing Tax Credit program, the Housing Trust Fund, and many other programs designed to stimulate development of affordable housing). The developer fee is essential to maintain and operate PSH facilities. SHF is a nonprofit, and their developer fee has to be channeled back into their mission, which is development of affordable housing. David Arning stated that the developer fee cannot exceed 15% of “eligible expenses” as stipulated by the IRS, and that these expenses are less than the total project cost. This fee looks fat on paper, but there’s a risk that you’ll never see it. The risk is in the recapture of funds. The developer makes certain guarantees to investors and if the developer fails to deliver on those, the investors will come after the developer. LIHTC is the single most important incentive to the development of affordable housing, and the developer fee is the lone incentive to the developer, besides the fulfillment of a charitable mission. These fees are critical to building reserves and are the sole source of income for a non-profit developer like SHF.
Nick Della Volpe asked whether or not it was easier to get money for Flenniken and Minvilla because the buildings were old. Jon Lawler responded that their age really didn’t’ have anything to do with making it easier to get money into the projects. He mentioned that Minvilla has Historic Tax Credits, but that Flenniken does not. Bill Lyons said that the City tried without success to find private developers for Minvilla. The development of PSH there will preserve a significant structure that will be a very attractive gateway between downtown and the surrounding neighborhoods.
Dan Smith asked a question about the ratio of clients to case managers in PSH. He said that we seem to have moved from a 10:1 to a 25:1 ratio and seemed to be asking if, even with this higher ratio, we could afford to pay all of the required case managers. Bill Lyons said that these developments don’t happen at that kind of pace. They come online one at a time at the rate of about 50 units per year or so, which means two new case managers at a time, and that organizations providing case management services in them have to step up and meet the challenge of raising funds to support case management delivery. If at some point over time an organization reaches what it believes to be the limit of its capacity to support this activity, we will not try to push beyond that. Sustainability is addressed on an ongoing, project-by-project basis. How do we know we can always raise the money to provide these services? We don’t have a guarantee that we can do any of these things going forward. Nothing comes with that kind of assurance attached to it, but we still move forward and do the very best that we can.
A gentleman named Tim spoke about the need to address the spiritual needs of people who experience homelessness. You can’t just give them a place to stay. People become homeless because of very bad things that occur in their lives, and we must show them compassion.
Ron Peabody asked how many chronically homeless people have been identified in HMIS (Homeless Management Information System, the main database used by service providers to gather data about homeless people in our community). Jon Lawler replied that approximately 1000 people designated in the database as chronically homeless received services in the last year. Mr. Peabody asked what the goal for PSH development is. Jon said that SHF can do one project per year, and that existing stock is being used on a regular basis, and that we’re developing a better understanding of what we need to develop in our community. Mr. Peabody said that 500 people are on KCDC’s waiting list for Section 8 vouchers. Jon responded that the wait list has been revised to a smaller number since Mr. Peabody got his information from KCDC two weeks ago, and that there is not a limitless supply of vouchers. [We met with KCDC the morning of May 19 and the wait list has been revised to approximately 270.] There is an art to making vouchers work. KCDC is not simply handing them out. This is one reason the developer of PSH must have sufficient reserves—to cushion against the unpredictable revenue from PSH tenants.
Stephanie Matheny asked David Arning what SHF has risked, so far, at Flenniken? David replied that SHF has $95,000 in Flenniken so far, of non-recoverable dollars that would be lost if the project fails to go forward.
Someone asked if any surplus funds would be reinvested in local projects, or would SHF develop outside the Knoxville/Knox County community? David Arning responded that SHF’s focus is on this community.
Nick Della Volpe asked if we could mimic the nursing home care continuum, in the sense that residents of a relatively costly kind of supportive housing could be helped to the extent that they’d be capable of moving into less-expensive housing. Jon Lawler answered that PSH isn’t the only kind of supportive housing and that it’s not appropriate for everyone. Tenants are not just put into housing, and residents of a particular development are not all at the same place with regard to the level of their disability and need. Barbara Disney added that residents who have Section 8 vouchers can take those vouchers with them to less expensive environments if they want to.
Duane Grieve asked if it is realistic to think that we can do away with existing cost as we fulfill the mission of the TYP. Jon Lawler responded that the TYP calls upon us to end chronic homelessness, but that it also calls upon us to do a lot of work to prevent homelessness in the first place. Mr. Grieve asked if we wouldn’t be adding new chronically homeless people each year. Bill Lyons responded that it’s not like there are slots that people move out of when they’re housed that are immediately occupied by some new chronically homeless person. Every person who is not stuck in the cycle of chronic homelessness is one person who is not adding to the cost borne by the community. We want to minimize the number of disabled people stuck in homelessness because it’s the right thing to do and because when they’re living on the street they are utilizing so many costly services.
Dave Gartner expressed disappointment that we didn’t provide a spreadsheet with costs of actual operations broken down into dollar figures.
Ron Peabody mentioned that TennCare is making major cuts and dropping people from its rolls. He asked how this will effect service delivery for mental health and basic healthcare. Ginny Weatherstone acknowledged that this places a burden on the service provider community. She indicated that she had been in contact with Cherokee Health Systems and Helen Ross McNabb Center to discuss this issue and that both of them are committed to continuing to serve their patients and clients who lose insurance provided by TennCare. She said that all agencies like these will continue the aggressive pursuit of other sources of funding, as in the example of the City’s recent submission of a Mental Health Transformation Grant to SAMHSA in partnership with Volunteer Ministry Center and Helen Ross McNabb. The bottom line is that there are people in the community who need this kind of help, and those who are committed to serving them will have to work harder to make sure they can deliver that help.
I had a very good conversation with an attendee after the meeting. She recommended, among other things, that a good topic for a meeting like this one might be the rationale behind the scattered site approach to PSH development. That approach is advocated in the TYP. There are good reasons for it, and she would like to hear them explained and opened up for dialog.
Another attendee offered some recommendations about presentation and materials that might be made available at these public conversations. We employed far too many acronyms in our speech and presentation materials, and this creates confusion and misunderstanding. Acronyms hurt. Spell things out. Point taken.
Some folks (I don’t think Dave Gartner was alone in this) wanted to see much more financial detail. This kind of material should be put on our website, along with images and reports on progress. Minvilla’s budget info has been up for a while. I need to update it, I’m sure. I’ll check on that and adjust as appropriate. I’ve not created a similar resource for Flenniken, but I will have it up within the week.
We need to create a handout for each of these meetings, and it seems reasonable to think we should make the same content available online. The suggestion is for a two page piece printed double-sided on one sheet that contains links to additional information online.
All good suggestions. I’ll follow through on them.
The next public conversation will be held at the Deane Hill Recreation Center from 6-7pm on Wednesday, June 23. The topic will be how the Ten-Year Plan came about. Dr. Roger Nooe, our community’s recognized expert on the subject of homelessness, Mike Dunthorn of the Ten-Year Plan office, who helped write the plan, and Linda Rust, of Knox County’s Community Development Department, who facilitated Community Concerns working groups’ input in the TYP’s formation for a period of about a year, will present as a panel. We’ll follow the same basic format. First half hour presentation, second half conversation about the subject.